Fade It Again?

LVS and UNP Updates

By Bryan Bottarelli
Tuesday, February 19, 2008 10:54 AM EST
Tue, 19 Feb 2008 15:54:00 GMT

Dear Bottarelli Research Member,

The markets are making a strong upside push this morning, as commodities, metals, and encouraging numbers from Wal-Mart helped the Dow gap up to 12,505. But despite this opening-session pop, don’t forget the rock-solid trading pattern of 2008: Sell the rallies. As I write, the market strength is already starting to diminish, and that means that a re-test of the Dow’s January 22nd low must be re-tested before extending upon any upside gains.

INDU

As a result, let’s continue holding our LVS March 85 Puts (LVS OQ). As you know, we entered these puts last Friday for $4.22 and set a pre-determined “sniper sell” at $4.80. Despite today’s strong upside, shares of Las Vegas Sands have been down over $2.00, and this increased the value of these puts up to a high of $4.70 in today’s action. That means we’re only $0.10 away from locking in another “sniper” gain, so be sure to take these profits the moment they trigger.

LVS

Looking at our UNP March 130 Calls (UNP CF), I wish the stock would have reacted more favorably to this morning’s upside move. As you can see from today’s chat, UNP wants to call its 50-day moving average support, but gaining any upside momentum off this line has been a struggle. Case in point, UNP was up $1.50 at the open of today’s trading, but failed to hold onto these gains after an hour into the session (noted by the black candlestick formation below). Since we added to our UNP call position on Friday, our cost basis has been lowered to $3.15. Today’s high on these calls is $2.80, so all it takes is one strong upside push and we’ll be back in the black. Therefore, continue to maintain the position.

UNP

In other news, oil driller Transocean (RIG – NYSE) is scheduled to report Q4 earnings tomorrow, and it looks to be another blockbuster report. In fact, their numbers could be more than double what they reported this time last year. Under normal circumstances, I would play calls leading into this report — but what’s scaring me off is the fact that RIG is bumping its head on its 50-day moving average.

RIG

This is a similar situation that we saw with John Deere (DE – NYSE) leading into their earnings report, and as you know, DE reported great numbers and yet the stock sold off. So for now, let’s hold off on playing RIG calls. Should something change, you’ll be the first to know. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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